1. 1
Fundamentals of
Personal Finance
Participants -
Team CTS
Finerva
Financial Wisdom 4 Young Indians

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Learning Objectives
1. List the benefits of studying personal finance.
2. Summarize the key steps in successful personal
financial engineering.
3. Understand the basic terms in personal finance
1. Assets Vs Liabilities
2. Savings Vs Investments
4. Understanding time value of money
5. Applying time value of money concept to
1. Wealth Creation
2. Retirement
3. Insurance

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Financial Literacy
Financial literacy is
knowledge of...

Facts

Concepts

Principles

Technological
tools
...fundamental to being
smart about money.

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Financial Responsibility
Financial responsibility is being
accountable for:
Your financial decisions and
Your own financial well-being.
“If it is to be, it is up to me”

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Personal Financial
Engineering
What is it?
Personal Financial
Engineering is the
development and
implementation and
monitoring of long-term
plans to achieve
Financial Freedom.
What are the steps in the
financial engineering process?

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Financial Planning Benefits
 Financial planning helps you achieve:
 Financial Success – achievement of
financial aspirations.
 Financial Security – being able to
fulfill any needs and most wants.
 Wealth – an abundance of money and
other financial resources.
 Financial Freedom – the state where
work is an option, you choose. Not
compelled to opt.

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The Building Blocks of
Financial Freedom

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Important Personal Finance Terms
Asset – is one that gives a positive cash flow
Liability – is one that gives a negative cash flow
Examples?

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…Important Personal Finance Terms…
 Inflation–Steady rise in the general
level of prices (reduces purchasing
power)
 Deflation–Falling prices.
 Examples?

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…Important Personal Finance Terms
Comparisio
n
Savings Investment
Returns Low, Fixed, Less Risky Higher, Variable, Risky
Types of Returns Cash Flow only (if any) Cash Flow and Capital
Appreciation
Term Short Term Long Term
Purpose Festivities, Gifts, Small
down-payments,
Religious purpose
Education, Marriage,
Wealth creation, Large
down-payments,
Retirement
Savings Vs Investment

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Opportunity Costs and Trade-
offs in Decision Making
 Opportunity Cost – Value of the next
best alternative that must be foregone.
 Opportunity cost reflects the best
alternative of what one could have done
instead of choosing to spend, save, or
invest money. Examples?
 Trade-offs occur when you give up
one thing for another.

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The Time Value of Money in
Financial Decision Making
 The Time Value of Money compares:
 value in the future of a Rupee received today
(FV)
 value today of a Rupee amount to be
received in the future (PV)
 Key factors: Time, Interest, Principal

Annuity - a series of payments/deposits

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Compound Interest
 Compound Interest – interest
earned on interest.
 Compounding – the process of
earning compound interest – is
the best way to to build wealth
over time.

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Calculating Future Values
 Future Value (FV) – Value of an
asset at the end of a particular time
period.
 Example: Wealth Creation
?

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Easy Thumb Rule - The Rule of 72
 Calculates the number of years it takes
for principal to double
 Years = 72 divided by interest rate.
 Example: 72 divided by 8% = 9 years
 Calculates the interest rate it takes for
principal to double
 Interest rate = 72 divided by number of years
 Example: 72 divided by 10 years = 7.2%

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Illustration: The Rule of 72

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Future Value of an Annuity
 What lump sum will be got over time if a
series of deposits are made (assuming
same amount is deposited each time)
 Example: Power of Compounding:
Kaun Banega Crorepathi?

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Present Value of a Lump Sum
 Present Value (PV) - Today’s value of
an amount to be received at a future date.
 Example: How much should I deposit?

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Present Value of an Annuity
 Present value of a stream of payments
to be received in the future.
 Example: Retirement Planning

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Risk Management
 Insurance helps to transfer risk at
low cost
 How much insurance do I need?
 Milestone Planning
 Income Replacement Method

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Golden Rules of Personal
Finance
1. “Pay yourself first” by spending less than you earn
2. Stay up-to-date about current economic conditions
3. Map your financial future by establishing goals and making
realistic plans to achieve them
4. Insure your risks
5. Take advantage of tax benefits on investments
6. Develop expertise in financial matters
7. Remember that you are responsible for your own financial
success.

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Thank you
Questions Session
This training was delivered by FINERVA
www.finerva.com